The Self-Taught MBA: Business and Strategic Planning, Part 1—Best-Laid Plans

My business plan focused on affordable housing. Whenever I followed suite, my efforts paid off and projects were successful, such as this groundbreaking with HUD dignitaries in Omaha, NE. When I didn't follow the plan, well, that's another story without a happy ending. In the very effort made when creating a business plan lie the seeds of success-you thought it though.

If you’re a builder, chances are you didn’t start your business with a formal plan. Most of us start with a few years in the trade, some tools, a truck, and maybe a box of business cards. I didn’t have cards. I made up flyers and ran around town slipping them into mailboxes. By the time I got back home, the phone was ringing and thirty-five years later I’m here writing this blog, having made my living for a lifetime in construction and real estate development. Along the way, I have written three, large and very formal business plans with paid consultants, and countless small, project-specific business plans. They all had one common purpose; it was to entice a bank or investor. Much later I realized the internal value of a business plan-and it is nothing short of a pause in the business routine to appraise where you are, and where you’re headed.

Many books describe the classic business plan, but most are geared for manufacturing, technology or retail startups seeking investors or a loan. You may not be looking for capital, but the planning process itself and the feedback you will elicit by showing your plan to trusted colleagues will help you to refine and focus your efforts. The most useful plans are drawn up as dispassionate self-analyses. It’s too easy to spin a business plan into such a good sales presentation that you convince yourself in the process. Better to approach your business plan as if you were the disinterested third party, a skeptical investor trying to decide if your venture is a good risk. What would you want to know about the business, the manager and the market?

To start, you’d want to know the basic service offered by the business. If it’s a very general service, such as “remodeling and construction, no job to big or small,” you may question the viability of such an approach, given an oversupply of contractors in a recessionary environment. If, on the other hand, the business plan offered a tight focus, such as “basement waterproofing,” or “residential energy efficiency upgrades,” you may have a concern about how many potential customers need or want this exclusive service in your market area. Neither approach is bad, but each raises its own set of questions.

It’s in the asking and then answering of these questions that you can look intently and analytically at what you’re doing to form realistic expectations. Someone recently commented on this blog, saying he hope to hear, “…advice on how to scale up the business so I can have a life away from the day to day operations, yet maintain customer satisfaction and profitability in a seasonal business.” Well, a business plan can answer this question, but it may not be the answer you were hoping for.

Your business model and market may not allow you scale up enough to put down your tools, but a related business venture, such as focusing on window and siding replacements, or bathroom remodeling might. A well thought-out business plan is like a road atlas-you define where you want to go, how much money you need, or how much time you want to spend with your family, and then see if the road you’re on will get you there. If not, then thank goodness for the opportunity to correct your course.

Once you’re on the right compass heading, the planning’s not over, you will adjust course as often as needed because things change. Most MBAs – please chime in if you’re and MBA and reading – will tell that the most important planning comes with regularly reevaluating and refining your business plan, usually one a year, through what’s commonly called strategic planning-subject of my next two installments, featuring an interview with Mike Benshoof, coauthor of the only book about business planning written specifically for homebuilders and remodelers.

If you’ve never thought through your businesses plan formally and wrote it down, I recommend Mike Benhoof’s book, Business Planning, because it was written for homebuilders. Successful Business Plan: Secrets and Strategies, by Rhonda Abrams will also provide an excellent, practical reference, although it is geared to startups. To write the plan, you may want to use software that prompts you with questions and then formats the plan into a presentation-quality document. I like Quicken Legal Business Pro 2012 by Nolo.com

In brief, a business plan includes five broad sections, starting with a brief, but accurate description of your service(s), followed by a description of your market area – who will hire you and why? The most important part is the third section where you describe your management team, your talents, experience, interests and abilities. Fourth, follows a description of your operations, an area most of us know quite well: how do you provide your service? Do you have, or need specialty tools or products; who are your suppliers, and why; do you perform the work personally, with employees or subs? Last, but certainly not least, a current financial statement and projection of potential sales and earnings.

The most effective plans start with a sober and serious look at your situation, the market, and realistic expectations. The first draft may reveal the business as originally conceived is not viable. If so, that’s good. You can conceive anew. In the end, the plan should propose a positive and optimistic road toward your personal and business goals. It must be encouraging, confident, and well conceived.

Fernando - Edit FYI - I went searching for Business Planning - you've got Benshoof's name spelled wrong here. Ordered it from Builder Books - I'm a terrible planner and it's something I know I've needed to do for years. Thanks for the kick in pants.

Yes indeed, user-256540, you're correct, and stay tuned, because this is precisely the direction we will follow in the next three chapters of the business plan discussion. Please do add your comments, as it is obvious you are knowledgeable and will have valuable advice. Thank you!

Your advice focuses on one specific type of business plan, which is the formal presentation offered to a prospective investor. It would be advisable to make your readers aware of the distinction among the various types of financial plans that can be utilized not only to secure investors, but also to manage a business. For example, of much more benefit to the average builder would be the creation of an annual financial plan detailing business operations. This annual plan would then be adjusted to create either monthly or quarterly business forecasts. In this way a builder could better manage his expenses and increase his profitability. The final process (perhaps a bit much for the average builder) would be the creation of monthly or quarterly demand forecasts whereby the builder could forecast demand for his particular services throughout the year and adjust his forcast expenses according to the projected rise and fall of various economic indicators for the construction industry. I think your series of articles will be well received and the message should be that the business of construction involves more than swinging a hammer.